Accounting Test Chapter 5

Front 1

What are the 3 components to annual reports for private companies

Back 1

1. Four basic financial statements
2. Related notes (footnotes)
3. Report of independent accountants (the auditor’s opinion) if statements are audited

Front 2

8 components annual reports (public)

Back 2

1. Nonfinancial section- letter to stockholders, management philosophy, products, successes
2. Financial section- SEC sets minimum disclosure standards for the financial section for public companies
1. Summarized financial date for 5 or 10 years
2. Management discussion and analysis (MD%A)
3. The Four Basic financial statements
4. Notes (footnotes)
5. Independent accountants report and the management certification
6. Recent stock price info
7. Summaries of the unaudited quarterly financial data
8. Lists of directors and company officers with addresses

Front 3

Quarterly reports

Back 3

1. Begin with short stockholder’s letter
2. Condensed unaudited income statement and balance sheet for quarter
3. Cash flow statement and stockholders equity statement often omitted. Some financial statement notes could be omitted too.

Front 4

3 types of sec reports

Back 4

10-K – Annual, due within 90 days of end of fiscal end-year and contains audited financial statements
10-Q – Quarterly, due within 45 days of end of quarter. Can be unaudited
8-K- (8k current report) due within 15 days of major event date, can be unaudited

Front 5

Classified income statement

Back 5

Net sales
- Cost of goods sold
Gross profit
- operating expenses
income from operations
+- nonoperating revenues/expenses and gains/losses
income before income taxes
- income tax expense
=Net income

Front 6

Income statements may include three sections

Back 6

1) Continuing operations
2) Nonrecurring items
a. Discontinued operations
b. Extraordinary items
3) earnings per share

Front 7

Earnings per share

Back 7

EPS= Net income/ average #of shares of common stock outstanding during the period
*if there are preferred dividends, the amount is subtracted from the net income in the numerator

Front 8

Statement of Cash FLows

Back 8

1. Cash flows from operating activities,
2. Cash flows from investing activities,
3. Cash flows from financing activities

Front 9

ROA analysis

Back 9

ROA= Net income/ average total assets
(averGe total assets is: beginning total assets+ending total assets)

Front 10

ROA profit driver analysis

Back 10

ROA= Net profit margin*asset turnover
NPM= net income/net sales; AT= Net sales/Average total assets